Mobile handset makers seek continuation of Make in India sops

Mobile phone makers have proposed nil or 1% Central GST and State GST at merit rate of 5% on all phones and tablets, whether imported or made locally, and on their inputs, parts and components.Gulveen Aulakh | ETTelecom | August 19, 2016, 19:59 IST

NEW DELHI: Handset makers have demanded that the government keeps at least 10% duty differential in the goods and services tax (GST) regime to ensure that Make in India proposition for mobile phones remains attractive, emphasizing that sop for local manufacturing be continued for another decade.

Mobile phone makers have proposed nil or 1% Central GST and State GST at merit rate of 5% on all phones and tablets, whether imported or made locally, and on their inputs, parts and components.

"The industry is extremely concerned how things will pan out in GST, particularly in connection with investments into manufacturing of mobile phones and components," Pankaj Mohindroo, chairman of the Fast Track Task Force (FTTF) said in a letter to electronics and information technology secretary Aruna Sundarajan Friday, highlighting apprehensions regarding further investments by companies, till duty differential principle was settled.

"An early clarification and assurance on the continuation of the custom and excise duty dispensation is critical to keep the manufacturing momentum going," the body said.

The task force was established by the government to achieve its target of 500 million locally made handsets by 2019, and establish a component industry with a turnover of Rs 50,000 crore. FTTF includes representatives from Samsung, Apple, LG, Panasonic and Micromax among others.

The government presently levies a 12.5% countervailing duty on fully made phones imported into India and a similar rate of duty on batteries, chargers and headsets of mobile phones.

The move to urge companies to Make in India, has worked so far. Foxconn Technology Group, the world's largest contract manufacturer, started making phones and is looking to expand its presence. Indian handset companies have also set up assembly plants and are now getting into assembling parts of mobile phones such as printed circuit boards and display units. All, based on benefits offered by the duty differential.

Under the GST regime, most indirect central and state taxes, including excise duty, sales tax, service tax and value added tax, will be subsumed into one levy. The move is expected to widen the tax base, lead to greater compliance and reduce the extent of tax variations and concessions offered by different states.

But the new tax regime, which will have two components of Central and State GST, can possibly upset the Make in India program, and the task force's Phased Manufacturing Program (PMP) if duty differential is not continued, handset makers say. Also at stake in PMP's plan, as per which about 1.2 billion units of mobile phones worth Rs 15 lakh crore can be made in India by 2025-26, besides conservatively employing 5.8 million people.

The task force, co-chaired by Foxconn's India head Josh Foulger, has also proposed that import Central GST on fully built mobile phones should be kept at current CVD of 12.5% and subsequently 1% Central GST should be imposed at each stage without input tax credit.

"If this is administratively found to be cumbersome, then the Central GST on mobile phones should be kept at 0%," FTTF said in its letter.

The task force has proposed a merit rate of 5% for State GST, giving grounds that revenue loss to the states who do not follow a floor rate of 5% at present, would be compensated by rise in trade due to the even rate across states. This will in turn spurt e-commerce sales - which are being billed in lower value added tax jurisdictions - and reduce grey marketing.

Additionally, the Central GST on domestic manufactured inputs, parts, components, and accessories, which is presently at 2%, without input tax credit, should be modified to 1%, since at double the rate the cascading effect at each level of the supply chain will amount to be much greater.